Transmission Rates

A California consumer’s electric bill reflects a variety of separate charges associated with providing electric services, which are bundled into a single amount. Part of this bill is used to pay for the transmission service, which ultimately benefits retail electric consumers. These charges are called the Transmission Access Charge (TAC) and CAISO’s Grid Management Charge (GMC).

The collective revenue requirements for all of the utilities that participate in the CAISO is the basis for the TAC which is charged to retail electric customers, or ratepayers. The GMC that is charged covers the CAISO’s cost for operating and managing the transmission component of the electric grid. The CPUC participates in the review of the CAISO’s GMC budget process.

Because transmission rates are subject to oversight by the FERC, the transmission revenue requirements of the various utilities and municipalities that participate in the CAISO is determined in FERC proceedings, called TO rate cases that are filed before the FERC. In some instances, utilities will file updates to a previously settled rate case when raising rates on a small subset of transmission components. As part of its statutory mandate, the CPUC - along with other stakeholders - intervene in these cases to ensure the rates that public utilities charge for transmission service are just and reasonable.

On October 31, 2008, Southern California Edison Company (SCE) filed revisions to its Transmission Owner (“TO”) Tariff. Although SCE’s filing will result in a small rate decrease ($6.5 million) for retail customers, SCE’s proposal still results in unnecessarily high, and therefore, unjust and unreasonable rates for its customers as discussed in CPUC’s protest filed with FERC. SCE requests a much higher return than is necessary to attract capital in today’s investment environment, uses a problematic proxy group, and relies on an Return on Equity (ROE) midpoint of only two data points, which ignores the relevance of other data. Because SCE’s filing results in a rate decrease, the CPUC requests that the FERC suspend the rate decrease for only one day and sets the rates subject to refund, consistent with FERC precedent. The CPUC protest additionally requests that the issues set forth in its protest, as well as other such issues as may emerge during the CPUC’s further review of SCE’s voluminous filing, be set for hearing; and that this proceeding be consolidated with ER08-1343 and ER08-1353, SCE’s TO-4 case.

PG&E filed a rate case on July 29, 2008, seeking a 17% increase in transmission rates. The CPUC is contesting PG&E’s request for a higher return on equity (ROE) of 12.3%, a figure well beyond the risk associated with electric transmission. The CPUC is also contesting PG&E's depreciation rate proposal. In Sepetember of 2008, the CPUC filed a protest at the FERC outlining these issues. The FERC has not yet ruled on this case. It is anticipated that the rate case will be negotiated in settlement proceedings.

PG&E sought a 12.84% increase in transmission rates, which it maintained was largely justified by substantial expansion in new transmission capacity. The CPUC contested the utility's request for a higher return on equity (ROE) of 12% and a higher depreciation write-down. PG&E's rate case was consolidated with another rate case involving Existing Transmission Contracts (ETCs), in which PG&E proposed changing the methodology used to calculate rates under certain ETCs that impact PG&E’s wholesale customers’ cost of service. In September 2008,13 months after PG&E filed its rate case, a settlement was reached among all parties that better reflected PG&E's actual costs. The settlement granted PG&E less than half of PG&E's proposed rate increase, an adjustment of about 6.32%.

PG&E is seeking transmission rate incentives for a new $5.1 billion bulk power transmission project in which PG&E is planning to be a major participant. If approved, the power line would span about 1,000 miles and transport up to 3,000 megawatts of power from new, renewable resources in British Columbia, Canada (“BC”) and the Pacific Northwest to the Bay Area in Northern California. Based on PG&E’s estimates, the breakdown of costs is $3.2 billion for the power line project and $1.9 billion for the necessary reinforcements to existing transmission systems. The CPUC filed a protest at the FERC on January 22, 2008, stating that PG&E’s effort to seek rate incentives at this early stage is premature and should be dismissed without prejudice. FERC has, nevertheless, allowed the rate incentives provided that PG&E’s rates do not exceed the upper end of what is considered just and reasonable.

In December of 2006, SDG&E filed a case before the FERC requesting a 22% increase in its annual retail rates along with an indefinite continuation of formula rates. The CPUC, along with other intervening parties, protested SDG&E's filing stating that its 22% rate increase, its proposed return on equity (ROE) and the indefinite length of formulaic rates are unjust and unreasonable. The case was settled in March of 2007. Under the terms of the settlement, SDG&E received $13 million less than its original requested amount . SDG&E’s received a 11.35% ROE, down from its requested 13% and 14%. Additionally, for the following six years, SDG&E will initiate, on a yearly basis, Transmission Revenue Balancing Account Adjustment (TRBAA) filings that will address rate base changes.

Historically, SCE files transmission rate cases with the FERC every three years. In 2006, SCE sought an increase of over 36% above their 2003 settled retail transmission rates. The CPUC, FERC staff and other interveners ultimately agreed on a retail revenue requirement that was nearly $40 million less than SCE’s original requested amount. This represents a more modest 21% increase in retail transmission rates above SCE’s previously settled rate.

In August of 2006, PG&E sought a transmission rate increase of nearly 19% to recover rising costs. The CPUC contested PG&E’s request on the grounds, among others, that PG&E's requested Return on Equity and depreciation expenses were too high. After months of settlement negotiations, the CPUC, FERC staff and other intervenors reached agreement with PG&E. Under the terms of the agreed-on settlement, for calendar year 2007, PG&E received retail revenues for its transmission system that were nearly $45 million less than the amount they originally requested. Moreover, with regard to depreciation expenses, California consumers will benefit from an additional element of the settlement under which PG&E agreed to track the net balance of collected depreciation dollars for cost of removal in a special sub-account.

In 2007, SCE filed a Petition for Declaratory Order with the FERC requesting a number of specific rate incentives in connection with its three new transmission projects. If allowed this would have granted SCE to collect from ratepayers a return on equity (ROE) substantially higher (about 13%) on these three transmission projects than what the FERC would typically approve for a California transmission utility. The CPUC filed a protest opposing SCE’s petition, as SCE did not provide sufficient support for the claim that such ROE incentive was needed to reduce transmission investment risks. As a result of the protest, FERC granted SCE return on equity incentives (see FERC Docket no. EL07-62-000) to 75 basis points for their Devers-Palo Verde II transmission line and Tehachapi lines and 50 basis points for the Rancho Vista transmission projects. This contrasts with SCE’s original request for 150 basis points for their Devers-Palo Verde II and Tehachapi lines and 100 basis points for their Rancho Vista projects.

On May 10, 2007, PacifiCorp filed a Notice of Termination of the Agreement for Use of Transmission Capacity, dated August 1, 1967, for a 47-mile portion of the Pacific AC Intertie (“PACI”) owned by PacifiCorp. That agreement had provided for PG&E, SDG&E, and SCE to pay PacifiCorp $475,000 annually and for PG&E to operate and maintain PacifiCorp’s line. After the termination of this agreement, ratepayers (customers of the retail electricity market) were at risk of being subject to paying in excess of $40 million per year for the transmission capacity on PacifiCorp’s share of the line.

The CPUC, along with other interveners, protested PacifiCorp’s Notice of Termination in FERC Docket No. ER07-882-000, on the grounds that, inter alia, PacifiCorp’s proposal was inconsistent with the purpose and character of the PACI. In December of 2007, a settlement was reached. Under the settlement, PG&E and PacifiCorp will each control 50% of the capacity of the entire line. The agreement provides for a ten-year phase-in period for PacifiCorp’s physical rights over its half of the line. The cost of the lease during the phase-in period is substantially less than the amount initially requested by PacifiCorp.

The California Independent System Operator (CAISO) is funded through rates it charges users of the California transmission grid and CAISO services, via its Grid Management Charge (GMC). The GMC imposes different rates for various services. CPUC staff is involved in ongoing discussions to ensure that these rates are applied fairly, particularly as they change with the implementation of the upcoming redesign of the wholesale market, MRTU. The collection of GMC revenues is based on the CAISO budgeting process, which the CPUC actively monitors to ensure that ratepayer money is well-spent and that all parties pay their fair share of grid operation costs.

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